Pound Euro (GBP/EUR) Exchange Rate Slides after PMI Miss
(Updated 16:00, 24/5/22) The Pound Euro (GBP/EUR) exchange rate tumbled to a 12-day low this morning after the UK services PMI fell far more than forecast.
The overall PMI score for the UK services sector plummeted from 58.9 to 51.8, nearing the 50-point mark that shows stagnation. Economists had expected the PMI to print at 57. The dire reading suggests that the cost-of-living crisis is hammering the country’s vital services sector, which makes up 80% of GDP.
In addition, new controversy surrounding the ‘partygate’ scandal is weighing on the Pound (GBP). Leaked photos show Boris Johnson delivering a toast to colleagues at a leaving event. This was the event on 13 November, which Johnson denied took place when asked about it in the House of Commons.
The images come ahead of Sue Gray’s report tomorrow, which is expected to be damning. Some analysts believe a vote of no confidence in the Prime Minister may now be inevitable. Such political uncertainty is bad for GBP exchange rates, and may be adding to the Pound’s downside today.
GBP/EUR is currently trading around €1.165, down from around €1.179 at the start of today’s trade.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Tumbles as Economic Anxiety Grows
The Pound Euro (GBP/EUR) exchange rate is in freefall this morning after the UK’s flash PMI for May revealed a sharp slowdown in service-sector activity.
Meanwhile, the Euro (EUR) is still enjoying tailwinds following the European Central Bank’s (ECB) recent hawkish shift.
Pound (GBP) Slumps on Service-Sector Slowdown
Pound Sterling (GBP) collapsed this morning after the UK’s latest PMIs revealed a slump in service-sector growth. The services PMI plunged from 58.9 to 51.8, well below forecasts of 57 (the 50-point mark separates contraction from expansion).
The latest results paint a troubling picture of the UK economy. The service sector makes up around 80% of UK GDP. Such a sharp slowdown in growth is incredibly worrying and suggests that the UK’s cost-of-living crisis is squeezing consumer spending.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence (the company that conducted the survey), commented:
‘The UK PMI survey data signal a severe slowing in the rate of economic growth in May, with forward-looking indicators hinting that worse is to come. Meanwhile, the inflation picture has worsened as the rate of increase of companies’ costs hit yet another all-time high.
‘The survey data therefore point to the economy almost grinding to a halt as inflationary pressure rises to unprecedented levels…
‘Companies cite increasingly cautious moods among households and business customers, linked to the cost-of-living crisis, Brexit, rising interest rates, China’s lockdowns and the war in Ukraine.’
This darkening economic outlook has completely erased GBP/EUR’s gains following last week’s unexpectedly strong data.
Euro (EUR) Continues to Enjoy ECB Tailwinds
Meanwhile, the Euro is heading higher today as markets continue to price in more aggressive action from the ECB.
Yesterday, ECB President Christine Lagarde – often dovish and careful with her communications – gave an uncharacteristically hawkish and precise prediction on the bank’s future policy. In a blog post, Lagarde outlined her expectations that the bank would raise interest rates in July and September. The single currency leapt in response and has continued rising today.
The upside comes despite larger-than-forecast slowdowns in Eurozone private sector growth, although the Eurozone PMIs are far stronger than the UK PMIs.
Pound Euro Exchange Rate Forecast: Political Headwinds to Hammer GBP?
Looking ahead, the Pound could face further headwinds.
Now that the Metropolitan Police investigation into ‘partygate’ is concluded, civil servant Sue Gray is free to publish her report.
Damning new photos have emerged ahead of the report’s release, which appear to prove that Boris Johnson lied to parliament when claiming that he was unaware of parties at No 10 Downing Street. In addition, the pictures have cast doubt on the integrity of the Met’s investigation.
Once again, Johnson’s premiership seems to be in jeopardy. The political uncertainty, particularly during a time of severe economic concern, could push the Pound even lower.